Non-Profit Hospitals Drift from Their Mission Despite Subsidies

I have posted previous notes about the University of Pittsburgh Medical Center (UPMC), one of which dealt with the entrepreneurship and salary of the health system CEO (see: UPMC Rewards CEO's Entrepreneurship). It now turns out, according to an article in the Wall Street Journal (see: Nonprofit Hospitals, Once For the Poor, Strike It Rich With Tax Breaks), that a number of non-profit hospitals are paying extravagant salaries to executives and providing relatively little charitable care. Read the whole article if you have time. I provide below only a short excerpt from it below:

At some nonprofits, the good times are reflected in new facilities and rich executive pay. Flush with cash, Northwestern Memorial Hospital in Chicago has rebuilt its entire campus since 1999 at a cost of more than $1 billion..... In 2006, Northwestern Memorial's former chief executive officer, Gary Mecklenburg, received a $16.4 million payout....In 2006, Northwestern Memorial spent $20.8 million on charity care -- less than 2% of its revenues and a fraction of what it received in tax breaks. By comparison, the hospitals run by Cook County, where Northwestern Memorial is located, spent 14% of revenues on charity care. Northwestern Memorial says that in addition to charity care, it provides other benefits to its community, such as pioneering research in obstetrics and other areas that improve standards of care nationally....In a report issued in December 2006, the Congressional Budget Office estimated nonprofit hospitals receive $12.6 billion in annual tax exemptions, on top of the $32 billion in federal, state and local subsidies the hospital industry as a whole receives each year....At the University of Pittsburgh Medical Center, which runs 20 facilities, cash and investments totaled $3.35 billion at the end of last year. UPMC says the money goes toward producing "world-class health care, education and research," citing the $1 billion it spent over five years to create electronic medical records for patients and an additional $500 million to build a children's hospital and a network of cancer centers. But some of UPMC's expenses are only tenuously related to medicine. In its 2006 fiscal year, UPMC also spent $10 million on advertising, including $1 million on ads in the New York Times.

Here are some of my thoughts about this story and the revelations contained in it:

• It seems to me that some of the non-profit hospital shave lost their way and forgotten their historic mission. The subsidies that are being handed out to them by local, state, and federal governments need to be carefully examined. In my opinion, hospitals don't need to run full-page ads in the New York Times.
• Excuse me for laughing, but I could not help myself when I learned that officials at Northwestern Memorial are quoted as saying that the hospital " provides other benefits to its community, such as pioneering research in obstetrics and other areas that improve standards of care nationally." Executives of hospitals affiliated with medical schools have always been eager to turf research expenses and responsibility to the medical school deans. So now we see that these same executives, when running for cover, cite such research as a rationale for their capital investments.
• Finally, UPMC officials brag about the $1 billion they have spent on electronic medical records as a means to enhance "world-class health care, education and research." I have a deep suspicion that, like any other business, the primary justification for their IT investments has been the goal of enhancing the efficiency and productivity of their business operations.

Comments

[steve mcclain, md]

Bruce,
RE: UPMC and $1B
An accounting of UPMC is due.
$1B seems like such a large amount.
What is the source?
If not from clinical revenues or gifts, but rather from NIH and other government funds, it seems inappropriate to be bragging on how much taxpayer dollars spent to build up their system.